Why are so many Americans unbanked?

An FDIC survey found last year that about 17 million Americans are unbanked, and many more are underbanked, relying on alternative services in addition to some banked ones. While not all are low-income, the unbanked population is significantly more likely to be low-income than the banked, and alternative services are often much more expensive than traditional banks, which only further keeps these members from gaining a bank account. So what exactly is keeping banks from serving these people?

As an article in the Economist explains, changes in the banking sector make serving low-income Americans less appealing. 

"The Durbin amendment – passed as part of the Dodd-Frank act in July 2010 – capped interchange fees, the commission that merchants pay, on debit cards," the article said. "One year earlier Congress passed the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act), which reduced interest-rate increases and late fees on credit cards."

Even more so, the low interest rates since the crisis also keep banks' profits low. In all, it is possible that more than a third of accounts actually cost U.S. banks money, one management consultancy told the news source. 

However, new technology and software give banks the ability to change this. With risk assessment tools, banks can use alternative data, such as rent or utility payments, to determine the credit worthiness of a borrower. Additionally, with application processing software, banks can increase efficiency to cut back on expenses, and further increase the number and range of bank customers. 

Different products are sparking up for those of the unbanked population, including pre-paid debit cards and peer-to-peer lending online. As these become more competitive with banks services, the unbanked may find themselves with more opportunities and better financial options.

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